Does Sigma Labs Inc (SGLB) Need To Raise More Cash?
Casey Hall
October 19, 2017
In the most recent twelve months, Sigma Labs Inc’s (NASDAQ:SGLB) earnings loss has accumulated to -$2.92M. Although some investors expected this, their belief in the path to profitability for SGLB may be wavering. Savvy investors should always reassess the situation of loss-making companies frequently, and keep informed about whether or not these businesses are in a strong cash position. This is because new equity from additional capital raising can thin out the value of current shareholders’ stake in the company. Given that SGLB is spending more money than it earns, it will need to fund its expenses via external sources of capital. Looking at SGLB’s latest financial data, I will gauge when the company may run out of cash and need to raise more money. Check out our latest analysis for Sigma Labs
What is cash burn?
SGLB currently has $3.38M in the bank, with negative cash flows from operations of -$2.49M. Since it is spending more money than it makes, the business is “burning” through its cash to run its day-to-day operations. How fast SGLB runs down its cash supply over time is known as the cash burn rate. The most significant threat facing SGLB’s investor is the company going out of business when it runs out of money and cannot raise any more capital. SGLB operates in the aerospace and defense industry, which delivered a positive EPS of $7.25 in the past year. This means, on average, SGLB’s industry peers operating are profitable. SGLB runs the risk of running down its cash supply too fast, or falling behind its profitable peers by investing too little.
NasdaqCM:SGLB Income Statement Oct 19th 17
NasdaqCM:SGLB Income Statement Oct 19th 17
When will SGLB need to raise more cash?
Opex, or operational expenses, are the necessary costs SGLB must pay to keep the business running every day. These include employee salaries and other overhead. Opex (excluding one-offs) grew by 29.21% over the past year, which is rather substantial. Not surprisingly, if SGLB continues to ramp up expenditure at this rate for the upcoming year, it’ll likely need to come to market within the next few months, given the its current level of cash reserves. Furthermore, even if SGLB kept its opex level at the current $4.1M, it will still be coming to market in the next couple of months. Even though this is analysis is fairly basic, and SGLB still can cut its overhead in the near future, or raise debt capital instead of coming to equity markets, the outcome of this analysis still helps us understand how sustainable the SGLB’s operation is, and when things may have to change.
What this means for you:
Are you a shareholder? In the context of your portfolio, you should always seek to diversify, especially if you have a relatively high exposure to SGLB. Hopefully, the analysis has shed some light on the risks you should bear in mind as a shareholder of SGLB, in particular, its tight cash runway moving forward. In addition to this analysis, I suggest you take a look at their expected revenue growth to determine the timing of future profitability as well.
Are you a potential investor? Loss-making companies are a risky play, especially those that are still growing its opex at a high rate. Though, this shouldn’t discourage you from considering entering the stock in the future. The outcome of my analysis suggests that if SGLB maintains the rate of opex growth, it will run out of cash within the year. This suggests an opportunity to enter into the stock, potentially at an attractive price, should SGLB come to market to fund its growth.
An experienced management team on the helm increases our confidence in the business – have a peek at SGLB’s CEO experience and the tenure of the board here. If you believe you should cushion your portfolio with something less risky, scroll through my list of highly profitable companies to add to your portfolio..
NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.
